E Special Treatment Trusts and ALTCS Eligibility

 

Revised 04/29/2025

Policy

This section covers the following ALTCS policies for Special Treatment Trusts (STTs):

• Disbursements;

• How income is counted for Special Treatment Trusts;

• Requirements for trustees;

• Penalties for late reporting; and

• Violations of Special Treatment Trust requirements.

 

1) Disbursements

Disbursements can only be made for the benefit of the customer and for purposes listed in state law at ARS §36-2934.01.

NOTE     For household expenses or any other shared expense, only the customer’s proportionate share is an allowed disbursement. The total expense divided by the number of people who share the benefit of the expense equals the customer’s share.

The following table lists examples of allowed disbursements:

Disbursement type	Description
Share of cost payment (SOC)	The amount an ALTCS customer must pay toward the cost of long-term care services.
Personal Needs Allowance (PNA)	The amount allowed for the customer’s personal needs (see MA1201C.1). A PNA may only be disbursed from an Income Only Trust. The PNA is considered a payment for shelter. It may be paid as a lump sum or for individual items.
Legal and professional expenses related to administering the trust or for the trust beneficiary	Income taxes owed on income earned by the trust or assigned to the trust. Investment fees related to administering the trust. Reasonable professional expenses, for example accounting and attorney fees, related to administering the trust. Guardianship and conservatorship fees for the trust beneficiary based on the fair market value of the services provided.
Medical expenses	Health insurance premiums, medically necessary medical expenses, and special medical needs of the customer, including: Expenses to make the home accessible to the customer. Purchase and maintenance of a specially equipped vehicle, if titled to the trust or a lien is placed on the title by the trust for the purchase price of the vehicle. Durable medical equipment. Over the counter supplies and medications including diapers, lotions, and cleansing wipes. Personal care service when determined medically necessary by the beneficiary’s physician. The services must be provided by an AHCCCS-registered provider, including a financially responsible relative.  NOTE     Payments for personal care services provided by a financially responsible relative cannot be higher than the AHCCCS fee for service rate.
Spouse or family maintenance allowance	Payment for the maintenance needs of a spouse or other dependent as described in MA1201C from the trust income.
Burial expenses for the customer	Disbursements for the customer’s burial expenses are limited to one of the following: Purchase of a prepaid burial plan funded by an irrevocable life insurance policy, irrevocable burial account, irrevocable trust account or irrevocable escrow account. NOTE     Any amount of the disbursement that exceeds the itemized burial expenses is an uncompensated transfer. Purchase of life insurance to fund a burial plan for the customer with a face value of not more than $1,500 after allowing deductions for burial plot items. A burial fund account of not more than $1,500.
Other expenses for the customer’s benefit	Costs for food, clothing, and shelter. Home property and other real property purchased by and titled to the trust. Items for entertainment, education, or vocational needs consistent with the customer’s ability to use these items. Travel expenses for a companion, including a financially responsible relative, when a companion is needed to allow the customer to travel for non-medical reasons. For Pooled and Disabled Under 65 trusts, disbursements to qualified Achieving a Better Life Experience (ABLE) accounts established for the customer’s benefit. (When reported at least 45 days in advance and approved by AHCCCS.) Other expenses personally approved by the Director.

 

Disbursements that do not meet the requirements in ARS §36-2934.01 are not allowed.

Some examples of disbursements that are not allowed from an STT include:

• Gifts, payments, or loans to or for the benefit of anyone other than the beneficiary, including reimbursements to third parties for the customer’s expenses;

• Child support and alimony payments that are not garnished;

• Paying all the shelter costs for a shared household;

• Income taxes when there is no actual tax liability;

• Vacation expenses for family members;

• Payments on past debts, including paying down credit cards;

• Health insurance premiums for other people; and

• Burial funds that do not meet the requirements listed in the table above.

When non-allowed disbursements have been made, the trust may lose its entitlement to special treatment. The disbursements may also need to be reviewed as a transfer with uncompensated value (see Chapter 900 – Transfers).

 

2) How Income is Counted for Special Treatment Trusts

Trust income and disbursements are counted as described in this section, regardless of the terms of the trust document.

The following table describes how income and disbursements are treated for income eligibility and for Share of Cost (SOC).

NOTE     For the ALTCS Income Test, the total countable income outside the trust plus the total countable disbursements from the trust may not exceed the ALTCS income limit.

Income Type	Counted for the income test?	Counted for SOC?
Counted income received by the customer that is not assigned to the trust; or Counted income assigned to the trust but not deposited to the trust account in the month received.	Yes	Yes
Amounts from the trust paid directly to the customer for any reason.	Yes	No
Any payments from the trust on behalf of the customer for food or shelter. This includes room and board in a boarding home or an alternative Home and Community Based Services (HCBS) arrangement. See Determining the Countable Portion of an HCBS Payment for details.	Yes	No
Income assigned to the trust that is manually or direct deposited into the trust account in the month received. Exception: Excluded income deposited into the trust is not counted for SOC.	No	Yes
For Pooled and Disabled Under 65 trusts, structured settlement annuity payments irrevocably assigned to the trust. NOTE     These payments are considered income to the trust, not the customer. These payments are not entered into HEAplus as income.	No	No
Interest or dividends earned by the trust corpus and added to the trust principal.	No	No
Payments from the trust that are not paid directly to the customer or are not payments for the customer’s food or shelter.	No	No
Payments from the trust for the customer’s PNA NOTE     The increased portion of the PNA for garnished child support or spousal support is not counted for income eligibility.	Yes	No

 

For examples, see STTs and Income Calculations and STTs and SOC Calculations.

3) Requirements for Trustees

The trustee of a STT has specific responsibilities related to providing proof and reporting changes. If the trustee fails or refuses to cooperate with these requirements, the trust can lose its special treatment status.

A trustee must:

• Provide proof needed to determine if the trust qualifies as a STT;

• Provide proof of disbursements and the related expenses;

• Report changes in trust income or disbursements;

• Report changes in trustees, as well as changes to an existing trustee’s phone number or address;

• Report if the trust purchases real or personal property; and

• Report when the trust is revoked or terminated.

 

See Notifying DBF of Events Affecting A Special Treatment Trust for instructions.

Other trustee responsibilities depend on whether the trust is still in its initial review to see if it qualifies as a STT, or it has already been approved as a STT.

 

Initial Special Treatment Trust Review

The trustee must provide the following documents for the trust review:

• The entire trust document;

• Proof of trust assets and disbursements from the date the trust was created to the current month;

• Proof of the source of the initial funding of the trust; and

• The Acknowledgment of Responsibilities as Trustee for a Special Treatment Trust form (DE-522).

 

The trustee must also provide one of the following forms:

• For trusts for individuals under age 65 with a disability or Pooled Trusts, the Special Treatment Trust Anticipated Disbursements (DE-312) form; or

• The Income Only Trust Anticipated Disbursements (DE-313) form.

 

The Anticipated Disbursement forms are used to state what costs and expenses will be paid from the trust.

For IOTs, the SOC MUST be paid from the trust. When the SOC is greater than the total income assigned to the trust, the full amount of the income deposited to the trust must be disbursed for the SOC. The SOC disbursement cannot be reduced to allow for other trust expenses.

See Explaining Special Treatment Trust Required Forms to Trustees for details on helping trustees complete the forms correctly, and ensuring trustees understand their responsibilities.

 

Reporting Changes

After the STT is approved, the trustee must report any new trust funding or changes to the planned disbursements listed on the DE-312 or DE-313 forms at least 45 days in advance.

See Disbursement Request Examples

When the trustee cannot report changes by this due date because of circumstances beyond his or her control, the trustee must report the change within 30 calendar days from the date of the change or emergency disbursement. However, the notice is still considered late. See section 4 below for penalties that may be applied.

A major change, such as the customer moving from an HCBS living arrangement to a nursing facility, may change the trust disbursements needed, especially with an IOT. When this happens, the trustee must provide trust account records and complete a new DE-312 or DE-313 form listing anticipated disbursements for the next 12 months.

When the customer or representative requests a trust disbursement that is not listed on the Anticipated Disbursements form, see How to Refer a Trust Disbursement Request to the Office of Eligibility Policy.

 

Reporting Requirements at a Renewal

At renewal, the trustee must provide information and update forms as described in the table below:

See How to Review Annual Accounting Statements for processing instructions.

Type of Trust	Requirements
Trusts for a Person Under Age 65 with a Disability OR Pooled Trust	The trustee must report any changes to the trust corpus and provide all of the following documents: Court ordered annual accounting documents or trust account records showing the actual trust income and disbursements since the last renewal; A report of expected trust income and disbursements over the next twelve months using the Special Treatment Trust Anticipated Disbursements (DE-312) form; Titles for any new trust assets; and Proof for any assets removed from the trust.
Income-Only Trust	The trustee must report the amount of the trust corpus at the time of the renewal and provide both of the following:  Trust account records showing the actual trust income and disbursements since the last renewal; and A completed Income Only Trust Anticipated Disbursements (DE-313) form for the next 12 months.

 

Annual Accounting Statements Placed with the Court

Trustees of STTs with a large trust corpus (usually Trusts for Individuals Under Age 65 with a Disability) are sometimes required to file quarterly, semi-annual, or annual accounting statements with the court that approved the trust creation. 

4) Penalties for Late Reporting

Changes to income or trust disbursements can result in the customer losing eligibility or paying an increased share of cost for one or more months. 

The trustee of an STT must report changes in income assigned to the trust or to disbursements from the trust at least 45 calendar days before the change happens. This is to allow enough time, if needed, to process any change in the SOC or eligibility for the month the change will happen. 

When the trustee reports these changes late, the change is reviewed to see if the SOC would have been higher, or eligibility would have been affected for past months. If so, the adverse action that would have been applied if the change had been reported on time is applied to the next month possible allowing for advance notice.

When an adverse action is taken to stop ALTCS eligibility or increase the customer’s SOC due to late reporting, the customer may appeal the decision. This may result in eligibility or SOC being continued at the previous level during the appeal. If the Agency decision is upheld at the hearing, the adverse action is applied for future months.

 

5) Violations of Special Treatment Trust Requirements

Violating the terms or conditions of a STT can result in the trust losing its Special Treatment status. Actions that violate the terms of a STT include:

• Depositing resources into an income-only trust;

• Depositing income or resources belonging to someone other than the customer into the trust;

• Breaches of “spendthrift” restrictions such as assigning, pledging, or otherwise obstructing the trust resources for certain personal debts or other obligations;

• Issuing disbursements from the trust that are not for the benefit of the customer;

• Giving false information about trust income or disbursements; and

• Failing to cooperate with trust reporting or proof requirements.

When a violation has occurred and the trust is no longer entitled to special treatment, it is treated as either a revocable or irrevocable non-special treatment trust (see MA802), until the trustee corrects the violation.

NOTE     If counting the trust resources and income as available due to losing special treatment would cause an undue hardship, the situation is reviewed by the agency on a case-by-case basis.

See MA804 for more information regarding undue hardship claims for trusts.

 

Definitions

Term	Definition
Advance notice	A period of at least 10 days before the date the adverse action will be taken.
Adverse action	A change to decrease or stop benefits or to increase the customer’s costs.
Disbursement	A payment or distribution from the trust corpus or trust earnings.
Financially responsible relative	Includes the following: Customer’s spouse; or If the customer is under age 18, the customer’s parents.
Trust corpus	The income and resources that fund the trust. The resources or income in the trust corpus may be available to the customer but are no longer owned by the customer. The trust corpus may also be called the trust principal.
Medically necessary	Health care services or supplies needed to diagnose or treat an illness, injury, condition, disease or its symptoms and that meet accepted standards of medicine.
Home Accessibility	Medical necessary modifications made to the customer’s home that allow the customer to live more independently. Examples include, but are not limited to: widening doorways, clear floor space for wheelchairs to move throughout the home, lower countertops, installing an entryway ramp, and adding grab bars in bathrooms.

 

Proof

Proof of disbursements

• Anticipated Disbursements form (DE-312 or DE-313) with all 12 months completed, signed by the trustee;

See Special Treatment Trust Anticipated Disbursements Form (DE-312) and Income-Only Trust Anticipated Disbursements Form (DE-313) for examples.

• Check registers or other records of payments that were made from the trust. The records should show the payments date, amount paid, and what was received. Include explanations for changes made to the trust assets, such as accounts closed, properties sold, or titles changed;

• Receipts, invoices, or billing statements for any legal or professional services to be disbursed from the trust;

• Proof of health insurance premium amounts that will be paid from the trust;

• Proof of any shelter expenses that will be paid from the trust;

• For burial expenses, a quote or estimate from the burial provider showing the type of pre-need burial plan and costs, unless the request is for a life insurance policy or designated burial account of $1,500 or less; and

• A written explanation of any planned medical expenses, payments to the trust beneficiary, entertainment, vocational, or transportation expense disbursements.

 

Proof of Trustee agreement to abide by the STT requirements

• Acknowledgement of Responsibilities as Trustee for a Special Treatment Trust form (DE-522) signed by the trustee.

 

Legal Authority

Program	Legal Authorities
ALTCS	42 USC § 1396p(d) ARS 36-2934.01 AAC R9-28-407.E AAC R9-28-408.F